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Netflix and the Future of Streaming

It seems like public pressure has forced Netflix off its forward-thinking high horse that streaming is ubiquitous enough to justify jettisoning DVD by mail. The Quikster brand is being completely shelved. Netflix DVD-by-mail and streaming services will remain under one roof (and, it can be assumed, symbiotically merged, as has historically been the case).

This was a no-brainer. Quikster was a mistake. Anyone who feels forward thinking Netflix is just being punished for showing some kind of 'prescient wisdom' about the future of the home video market is ignoring one huge factor: the user end experience and how Netflix's decisions have negatively impacted it. Customers were already sour on the price increases. They were then faced with managing two separate services. In a way, this felt a lot like Netflix dictating, to us, what they felt was more important. Some geeks only stream. I'm one of those geeks. But I recognize the very real need for DVD-by-mail to remain viable for at least another few years.

The Quikster proposal presumably addressed what Netflix felt were rapid changes in the home video market. However, they never seriously considered the customer experience, and didn't remotely considering the current disadvantages of an all streaming model. The price hikes, followed by the apology and Quikster announcement, followed by the Quikster apology, leaves one with the impression that Netflix felt deeply, immediately imperiled by changes in the market and panicked.

Panic doesn't inspire confidence on Wall Street, as evidenced by the market's reaction to both the Quikster debacle (stocks went down) and the subsequent retraction (stocks lifted slightly).

Listen, the technology exists to make streaming all we need, but the infrastructure does not. That's the bottom line right now, and people who focus on the ubiquity and practicality and inevitability of streaming (in other words, people who get caught up in the technology) are ignoring the role studios, cable companies, and other entities have yet to play in all this. These entities' indecision - motivated solely by greed and an addiction to the status quo - is not the consumer's fault.

Additionally, while many households - including mine - are fully equipped to stream television and movies, many are not. Many households in this country simply haven't adopted yet. That's not their fault. It doesn't make them stupid. Households shouldn't be forced to sacrifice convenience in order to conform to models they're not ready for, but that's the position Netflix put them in.

UPDATE:

I've come across two editorials that do a great job of articulating the problem with the Netflix/Qwikster scheme.

Netflix, the ubiquitous video rental service, just announced a decision to shift off its DVD by mail service into another company called 'Qwikster.' The Netflix brand will be synonymous with video streaming only. 'Qwikster' will associate solely with the blu-ray/dvd by mail service, with an additionally foray into video game rentals (for another $8 a month).

Customers must maintain two separate accounts from now on, with two different, unrelated websites, two separate logins, and most of all, no further merging of account information such as movie ratings, queue management or anything else that has kept the Netflix brand cohesive.

The response to this maneuver - from investors, customers and business analysts - has been almost unanimously negative. There are some incredibly acute statements on the official Netflix blog criticizing not just the decision but the way it was handled, and more critiques are popping up all over the place.

Not surprisingly, staunch Netflix defenders have bubbled up all over the tech blogs. These sites are rife with technical minded entrepreneurs, back-end IT people and bleeding edge tech aficionados. They're looking at Netflix's decision through the prism of what the industry demands, rather than what the consumer demands, which is a mistake. While the former is certainly vital - in fact it is the driving impetus behind Netflix's decision, the latter not only was responsible for Netflix's success but will make or break any company, no matter how forward-thinking it is. No business decision should ever be made in a vacuum, without consideration of how the consumer experience shifts of the social or human ramifications.

Anyone who feels Netflix is making a smart move is, in essence, saying once you understand Netflix's business rationale, you must accept it.

One user says:

"Seems like a pretty smart move to me. Disentangle now before it becomes a dead-weight."

The 'dead-weight' here is, in fact, the customer.

Another user states:

"With networks building their own TV everywhere initiates and popularity of other On demand services - Vudu, Amazon etc. Netflix's splitting the business is a smart move to focus on respective market/consumer segments. Streaming is the future and Netflix knows how to grow its consumer base - going borderless."

This assumes that Netflix, in focusing on these consumer segments, is maintaining the investor confidence to not only focus on these consumer segments, but get valuable contracts drawn up. Is Netflix still positioned to wedge into the market now dominated by Vudu, Hulu and Amazon Prime now that public confidence in the one-prosperous company is at an all-time low?

One last user, an IT guru, says:

"A brilliant move by Netflix. Reminds me of how Steve Jobs jettisoned the floppy disk drive, then the CD, etc when new technology could replace it. DVD shipping is an old business, and will slowly die out."

Comparing this with Apple's decisions to simplify and do away with outgoing technology is a really poor analogy. Apple has always been, first and foremost, obsessed with brand cohesion and brand unity, even when phasing out commonplace technology. It's one thing to phase out a CD drive through a generation of product; it's another thing entirely to send out technicians to forcibly remove CD drives from customers' computers. What Netflix is doing is akin to this second option, and as a result, it jettisons brand unity and in turn, brand loyalty. It's a dumb move to even mention Apple in regards to what Netflix is doing. It's not remotely the same thing. If Apple creates a new digital standard, it first rolls out products, services, and technical integration that adequately fill the gap. Netflix has not done this.

Positive assessments of Netflix's decisions acknowledge the business realities that Netflix are up against. What these accolades refuse to acknowledge is the most important element in this whole enterprise: the customer experience. What, for instance, drew the customer to Netflix in the first place and kept them loyal? It's one thing to cleverly and correctly interpret (Netflix CEO) Reed Hastings' rationale for excising DVD by mail with what he sees as the future of home video services. It's another thing to ignore the psychological effect this has on the consumer, not to mention investors. Don't think the psychology of the investor has a place in business decisions? What about Wall Street, with is almost entirely ruled by psychological projections? What about the overwhelming investor (and customer) reaction to this move? It will directly impact Netflix's ability to pair its streaming services with valuable incentives in the future, so it matters.

Netflix's decision rejects the notion that a company in flux should maintain and building their customer base. Maybe this gamble will pay off in spades, but consider me: I downgraded my service yesterday and am not looking back, and I was one of the few Netflix customers who didn't mind the recent rate hike. I was happy to pay $5 more a month for the convenience of one company, one bill. Sure, I was a bit peeved at the arrogant way the rate hike announcement was handled, but for me, it was all.

What pushed me over the edge was the idea of having to manage two separate accounts - while not adding much value, if anything at all in the way of added incentives in the streaming service or the DVD by mail. If Netflix's plan is to intentionally push customers out of DVD by mail and right into the stream, the timing couldn't be worse. Netflix's streaming content is sub-par, and they are poised to lose their valuable Starz programming by the end of the year. Has Netflix announced one new partnership or deal that might ensure appealing programming in the future? It would have made sense for Hastings to pair the announcement or the Quikster/Netflix split with an announcement about what to look forward to with its streaming content. He did no such thing, so any customer can assume that we will continue to get the same lackluster parade of b-movies. Yes, there are some Netflix customers who are ecstatic about their streaming service. I can also tell you that as much as they'd like you to think so, they are not the majority.

The only way a company - at least one that's not a monopoly like Comcast - concerned about future growth should operate is from a standpoint of working harder to make things more seamless for the customer. If there is a surgical separation of services, it should be done behind the scenes. In other words, complication and the burden should fall on the company, not the customer. This is such a simple tenet that I was flabbergasted when I read Hastings' 'apology' letter. I really first thought he was joking. And that name? 'Quikster?' It may be a small thing, but it reveals just how out of touch they are.

Netflix, twice in a 6 month period, has decided to ensure its future growth by making what it feels are necessary decisions without considering, or at best ignoring customer reaction. I understand Reed Hasting's justification, but as a customer, I don't need to hear his woes about keeping Netflix profitable. Unless I'm a shareholder, I'm not interested in that. What I - along with every other clear minded customers, wants to know is, how does this make things easier for me? That answer is, of course, it doesn't.

Adding to this, streaming services, if they are to become more profitable and more ubiquitous in the future (as Reed Hastings is betting), need to engage in delicate tactical negotiations both the internet service providers and the movie studios. The standard data cap - that is, the amount of data that a Comcast customer is allowed to download per month, is 250 gigabytes. A customer that abuses the data cap gets their account pulled for a year. 250 Gb may sound like a ton, but consider that HD streaming - which is part of the future of streaming that Hastings refers to - is extremely data-intensive. Those 250 Gb data caps, if streaming is to become ubiquitous, or at very least, more of a staple in the home, are insufficient and not future-proofed. Comcast, Time Warner, and other ISPs operating here in the US seem reluctant to shift the data cap limit. In fact, Comcast's Official site states that the vast majority of their customers never come close to using up a fraction of the data cap limit. This is either false now, or will be false very soon, if streaming is to be the default mode of viewing home entertainment. How is the industry going to adapt? I get the feeling none of the executives see it as particularly important right now.

Another variable to consider are the movie studios themselves. They're still in the business of selling product, be it digital or physical, and streaming services cut into that bottom line. It isn't arbitrary that many new releases don't see the light of day on Netflix until 30 or 60 days after release date.

If Netflix wants to shift priorities to streaming, and if its a service they see as the future, taking over from physical media, then they want to start engaging in negotiations now with both the ISPs and the Studios. There are, in fact, other comparable services gaining prominence over Netflix that would be more than happy to take advantage of the splintering of Netflix services that will drive more customers away. Since the rate hike announcement, Netflix has lost about a million customers, a small number in some sense but not insignificant.

I am like most consumers. I'm surprisingly tolerant, even if the value for money wanes, as long as I have convenience. If my value for money and convenience are both pulled out from under me, I have little incentive to stick around. I suspect a lot of other people feel the same way.

This blog contains several types of writing.
1. Political commentary analyzing current trending social and economic ideas.
2. Essays about leadership and business, gender politics, and the media.
3. Short fiction and fables in multiple genres, including historical and speculative fiction, short parables, and horror.
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